SIEMENS AKTIENGESELLSCHAFT,MUMBAI vs. ASSTT. CIT (INTERNATIONAL TAXATION)-CIRCLE-4(2)(1), MUMBAI
Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SMT. BEENA PILLAI () & SMT. RENU JAUHRI ()
Per: Smt. Beena Pillai, J.M.:
The present appeals filed by the assessee arises out of orders dated 29/04/2022 and 20/07/2022passed by ACIT Int.
Tax Circle 4(2)(1), Mumbai for assessment years2017-18 &2018-
2
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
It is submitted that the issues raised by the assessee in both the appeals arise out of identical facts and are common. For the sake of convenience, grounds relating to assessment year 2017- 18 are reproduced as under: “ The Appellant files the present Appeal against the impugned Order dated 20 July 2022 passed by the Assistant Commissioner of Income-tax (International Taxation) - 4(2)(1), Mumbai ('the AO') which was received by the Appellant on 21 July 2022. The said appeal is filed under section 253(1)(d) of the Income-tax Act, 1961 ('the Act') on the following amongst other grounds each of which is in the alternative and without prejudice to any other: 1. The AO erred in determining the Appellant's total income at Rs. 4,75,06,48,172 as against the returned income of Rs. 4,61,75,90,490. 2. The AO/Dispute Resolution Panel ('DRP') erred in holding that the royalty and fees for technical service income are taxable on an accrual basis as opposed to the receipt basis adopted by the Appellant. In this regard they failed to follow binding decisions of Tribunal in the Appellant's own case in AY 1990-91, 1991-92, 1994-95, 1998-99, 1999-2000, 2004-05, 2005-06 and 2006-07. 3. The AO/DRP erred in holding that an amount of Rs. 17,64,03,745 accrued towards supply of software as royalty in the hands of the Appellant. 4. The DRP erred in holding that the separate invoices identified as relating only to software without any hardware were invoices for supply of software only. This is because, although there is a separate invoice for software, the same is inter alia supplied for the equipment /hardware and can be used only on the equipment/hardware supplied by the Company. In these cases, no copyright right has been parted with by the Appellant. They, therefore, erred in holding that consideration for supply of such software invoiced separately will result in royalty income. 5. The DRP failed to appreciate that even in cases where software has been supplied independently, no copyright right has been parted with by the Appellant. They, therefore, erredin holding that 3 ITA No.2259& 1615/Mum/2022; A.Y. 2017-18 & 2018-19 Siemens Aktiengesellschaft consideration for supply of such software invoiced separately will result in royalty income. 6. The AO erred in holding that the Appellant and Siemens Limited allegedly constituted an Association of Persons (AOP') in respect of contract with Power Grid Corporation of India Limited ('PGCIL') and others. 7. The DRP erred in not adjudicating the Appellant's objection challenging the finding of the AO that the Appellant along with Siemens Ltd. allegedly constituted an AOP in respect of the contract with PGCIL and others. 8. In the alternative and without prejudice to the above, the AO/DRP ought to have held that income in respect of contract with PGCIL and others, to the extent it is taxable, should be assessed individually in the hands of the Appellant and Siemens Limited and not in the hands of an alleged AOP. 9. The AO erred in giving the findings that there exists an AOP relying on decisions which have been overruled by higher authorities. 10. The AO/DRP erred in holding that Siemens Ltd. constituted the Appellant's permanent establishment (PE) for the purposes of the DTAA between India and Germany in respect of its contract with PGCIL and others. 11. The AO/DRP erred in taxing the income arising from offshore supply of equipments in relation to PGCIL and other contracts overlooking the provisions in the Act and the DTAA between India and Germany. 12. On the facts and circumstances of the case and in law, the Transfer Pricing Officer ('TPO')/AO/DRP erred in independently determining the arm's length price ('ALP') of the international transactions pertaining to the fees received for technical assistance and royalty for technical knowhow, hereinafter referred as 'Technical services and other transactions' of the Appellant with AEs in India without fulfilling the juri ictional pre-conditions in section 92C(3) of the Income Tax Act, 1961 ('the Act'). Since, none of the said conditions had been fulfilled in its case, they ought to have accepted the ALP as determined by the Appellant in respect of such transactions.
4
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
On the facts and circumstances of the case and in law, the AO/TPO have erred in not accepting the benchmarking analysis carried out by the assessee in the transfer pricing documentation maintained as per the requirements laid down under Rule 10D(1) and Rule 10D(3) of the Income Tax Rules, 1962 (the Rules). The Hon'ble DRP further erred in confirming the action of the AO/TPO. 14. On the facts and circumstances of the case and in law, the AO/TPO/DRP erred in determining an adhoc adjustment of Rs. 38,67,04,168, towards determination of ALP of the international transaction of 'Technical services and other transactions' (being 10% of INR 3,86,70,41,680) without applying any of the prescribed methods as per section 92C of the Act, the adjustment carried out by the TPO is thus purely adhoc and arbitrary. The Hon'ble DRP further erred in confirming the action of the AO/TPO. 15. On the facts and circumstances of the case and in law, the TPO/ AO/ DRP erred in not appreciating that the Appellant had benchmarked its international transactions pertaining to Technical services and other transactions' with AEs in India based on the Transactional Net Margin Method for determining the ALP of such transactions by adopting the Transfer Pricing documentation of its Indian AEs. 16. On the facts and circumstances of the case and in law, the TPO/AO/DRP erred in observing that the Appellant had failed to discharge its onus as it had not reconciled the international transactions pertaining to "Technical services and other transactions' with AEs in India referred to in its Form No.3CEB with the financial statements of the Indian AEs. They failed to appreciate that the transactions reported in the financial statements of the AEs need not match with the transaction reported in form no. 3CEB by the respective entities due to different reporting requirements under respective law. The said difference had arisen as the Appellant reported the said transactions on receipt basis, whereas, the Indian AEs reported their transactions on accrual basis. 17. On the facts and circumstances of the case and in law, the DRP/AO/TPO have proceeded to make an adjustment on ground of non-reconciliation of the amounts reported in form 3CEB of the Appellant (reported on receipt basis); with the financial statements of the AEs (prepared on accrual basis); without appreciating the Hon'ble Bombay High Court's judgement in Appellant's own case
5
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft has held that the international transactions pertaining to 'technical services and other transactions' are taxable on receipt basis, and not otherwise.
18. On the facts and circumstances of the case and in law, the TPO/AO/DRP have failed to appreciate that the Appellant has reconciled transactions pertaining to 'Technical services and other transactions' with the transactions reported by the Indian AEs in their respective
Form
No.
3CEB which also have been acknowledged by the TPO in its Order.
19. On the facts and circumstances of the case and in law, the DRP has erred in concluding that the material facts and circumstances for current year are same as per the earlier years; without appreciating the fact that TPO in current year has acknowledged the 100% reconciliation of international transactions provided by the Appellant in relation with amounts reported by the Appellant and the AEs in their respective form 3CEBs.
20. On the facts and circumstances of the case and in law, the TPO/AO/ DRP failed to appreciate that in respect of the said international transactions entered into by the Appellant with its AEs in India, the Revenue had accepted the transactions to be at ALP in the case of certain AEs and in respect of other AEs they had held the payment/expenditure to be at more than ALP. Having accepted the ALP or found the transaction to be at a price more than the ALP, it was not open to the Revenue to make a transfer pricing adjustment in the Appellant's case.
21. The AO erred in initiating penalty proceedings under Section 270A of the Act.”
Brief facts of the case are as under:
2. The assessee filed its return of income on 30/11/2017, declaring total income at Rs.414,71,15,235/-. The case was selected for scrutiny and notice u/s. 143(2) and 142(1) was issued along with questioner. In response to the notice, the representative of the assessee appeared before the Ld.AO and filed requisite details as called for. The Ld.AO noted that the assessee is a non resident and that the assessee had derived
6
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft income of Royalty for technical knowhow Fee for Technical assistance under various agreements from Indian
AE.
Accordingly, reference was made to the transfer pricing officer for determining the ALP of the transactions.
2.1 The Ld.TPO accordingly called for the economic details in Form 3CEB in respect of the international transactions undertaken by the assessee with Indian entities. The Ld.TPO noted that assessee had received royalty for technical know-how and fee for technical assistance from Indian entities. The Indian
AE withheld tax at the source 10% of the payment made to the assessee as per the provisions of double taxation avoidance agreement (DTAA). The assessee used TNMM as most appropriate method in order to compute its margin. It was also submitted that, the Indian entity earned net cost plus mark-up and was consistent with the margins earned from independent comparable companies. The assessee thus in the transfer pricing study report held its transaction with the Indian entities to be at arms length.
2.2 The Ld.TPO dissatisfied with the documentation maintained by the assessee, made ad hoc adjustment towards the international transaction of technical service and other transaction at 10% in the hands of the assessee.
2.3 On receipt of the order passed under 92 CA (3), the Ld.AO passed draft assessment order on 14/06/2021 by proposing further addition in the hands of the assessee as under:
• income from royalty and FTS taxed on accrual basis against receipt basis at ₹414,71,15,240/-
7
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
• income from supplier of software treated as royalty amounting to ₹15,03,05,707/-
• taxation of income from offshore supply by considering the AOP between the Indian entity and assessee as a composite contract (protectively) amounting to ₹1,64,43,813/-
2.4 On receipt of the draft assessment order, assessee filed objections before the DRP
2.5 The DRP vide its directions dated 30/03/2022 confirmed the additions proposed by the Ld.AO.
2.6 On receipt of the DRP directions, the Ld.AO passed the impugned order making additions in the hands of the assessee as confirmed by the DRP.
Aggrieved by the order of the Ld.AO the assessee preferred appeal before this Tribunal.
3. At the outset, both sides submitted that all the issues raised by the assessee in both the years under consideration are squarely covered by various decisions of coordinate of this Tribunal in assessee’s own case passed for the earlier assessment years. It is also that some of the issues are also covered by the decision of Hon’ble Bombay High Court in assessee’s own case.
4. The Ld.AR has filed a chart of grounds with the narration of the issues that are covered with the orders passed by this tribunal and is earlier assessment years. The Ld.AR submitted that order for a suspended 2009-10 dated 07/06/2024 has discussed in detail all the issues.
Ground No.
Issue alleged
2. Income from royalty and FTS taxed on accrual basis as against receipt basis
3-5
Income from supplier of software treated as royalty
8
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
6-11
Considering the assessee and the Indian entity as an AOP and taxation of income from offshore supply in the hands of the assessee in India as a composite contract
13-21
Benchmarking the transaction with Indian AE on an ad hoc mechanism to determine the ALP. The transactions
1 The Ld.DR admitted that all issues are covered based on the fact that the authorities have also relied on me the preceding assessment years which has been considered by this Tribunal. However, the Ld.DR place reliance on the orders passed by the authorities below. We have perused the submissions advanced by both sides in the light of the records placed before us. 5. Ground No.2 raised by the assessee is with regards to the addition made towards the royalty and fee for technical services to be offered to tax on accrual basis. 5.1 The Ld.AR place reliance on the decision of coordinate of this Tribunal in assessee’s own case in ITA Nos.2153&2179/MU/2014 vide order dated 07/06/2024 for assessment in 2009-10, ITA No.7779/MU/2012 vide order dated 16/06/2025 for assessment in 2008-09 and vide order dated 27/02/2025 for assessment in 2021-22. 5.2 The Ld.AR submitted that the contract with CMRL was taken over by the assessee from Siemens AG. It was submitted that the cognate in case of Siemens AG has held that the receipts from the set contract is taxable on accrual basis. It is submitted that the same is applicable to the present facts of the case also.
9
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
3 On perusal of the above referred orders it is noted that this Tribunal has considered the taxablity of FTS on receipt basis as per double taxation avoidance agreement between India and Germany and has observed and held as under: “78.The assessee is a non-resident Company, incorporated in Germany, having taxable income in India. With regard to FTS and royalty is has shown income on receipt basis as per the India Germany DTAA. The issue before us is, whether the income of the assessee is to be taxed on receipt basis as against accrual basis. The ld. AO has relied upon the judgment of Hon'ble Madras High Court in the case of Standard Triumph Motors Ltd. (119 ITR 573) which has held that in case of non-resident, Section 5(2)(a) of the Income tax Act i.e., will have no application andtaxabilitywillbedeterminedonlyunderSection5(2)(b) of the Income Tax Act, i.e., by accrual. Subsequently, the Supreme Court in the case of Standard Triumph Motor Co Ltd. v. CIT [1993] 201 ITR 391 (SC) held that in the particular case, the credit entry to the account of the assessee non-resident in the books of Indian company amounted to receipt by the non- resident. Further, in the case of the assessee this issue has been settled by the Tribunal right from A.Yrs.1990- 91,1991-92,1994- 95,1996-97,1997-98,2001- 02,2002-03and2003-04.Theld.AOhas not accepted the decision of the Tribunal stating that Revenue has preferred an appeal before the Hon’ble Bombay High Court. 79. The ld. DRP held that Hon’ble Bombay High Court in assessee’s own case has accepted the contentions of the assessee inA.Y.1986-87to1992-93,1996- 97,1997-98and2001-02wherein the Hon'ble Bombay High Court has considered the various ITAT decisions in assessee's own case and the stand of the assessee has been upheld that the receipt is to be taxed on actual receipts. Therefore, the AO is directed not to bring tax the income on account of royalty and FTS on accrual basis but to tax the same on receipt basis. After considering the submissions and decisions of the Tribunal and the Hon’ble Bombay High Court in the case of the Tribunal, this issue is decided in favour of the assessee that income on account of Royalty and FTS can be taxed only on receipt basis.
10
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
Even otherwise Article-12 of India-German tax treaty used the word “paid, payments of any kind received and payments of any amount”. The Article12 of India-Germany Tax Treaty which has been reproduced below:- “ARTICLE12-Royalties and fees for technical services- 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2…… 3. The tem “royalties’ as used in this Article means payments of any kind received as a consideration for the use………………….. 4. The term "fees for technical services" as used in this Article means payments of any amount in consideration and so on 5…. 6….. 7….. (emphasis supplied) 81. Thus, as per the tax treaty, Royalty and fees for technical services income should be taxable only upon payment i.e. on receipt basis. If this position has been accepted by the Tribunal in assessee’s own case for the earlier years and also by the Hon’ble Bombay High Court, the details of which are as under:-
AY
ITA No.
Date of Order
2003-04
1183of2011
10.01.2013
2001-02
1458of2010
22.10.2012
1997-98
1033of2011
20.11.2012
1996-97
124of2010
22.10.2012
1986-87 to 1992-93
2356,2357,238
4,2386,2387,
2428,2429of20
11
07.03.2013
11
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
AY
ITA No.
Date of Order
2006-07
8094/Mum/2010 06.05.2014
2005-06
1174/Mum/2010 30.05.2014
2004-05
4502/Mum/2009 18.05.2012
1998-99
&1999-00
6133/Mum/2002
7589/Mum/2003
07.12.2009
1994-95
1499/M/1998
27.06.2005
1990-91 and 1991-92
1499/M/1998
04.07.2005
82. Hence, we do not find any reason to take any different position. Before us the ld. DR had submitted that there is a reference in the case of Ampacet Cyprus Ltd. vs. DCIT reported in (2020)
119 Taxmann.com 277 (Mumbai Trib) wherein the Tribunal has referred the matter to special Bench.
In the context of the India-Cyprus Tax treaty where the issue is whether interest received should be taxed on receipt basis or on accrual basis. Since in assessee’s own case this issue stands settled by the Tribunal and by the Hon’ble Bombay High
Court which is binding on us and therefore, reliance placed by the ld. DR in the aforesaid matter to refer to the Special Bench is declined. Thus, this ground raised by the Revenue is dismissed.
5.4 From the above findings of the Co-ordinate Bench, it is clear that this issue is a recurring one and that the Hon'ble Bombay
High Court and the Co-ordinate Benches have consistently held that the income is not taxable on accrual basis but on receipt basis. Respectfully following above view, we hold that the receipts in the hands of the assessee are taxable on receipt basis and not on accrual basis. Accordingly, ground No. 2 raised by the assessee stands allowed.
6. Grounds No.3 to 5 raised by the assessee pertain to amount received towards supply of software by the assessee being treated as Royalty.
12
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
1 The Ld.AR submitted that, this issue stands covered by the decision of the Co-ordinate Bench in the case of Siemens AG and this fact is substantiated by the findings of the DRP where the DRP has relied on its own decision in the case of Siemens AG for AY 2018-19 to uphold the addition made by the AO. 6.2 It is noted that the assessee claimed that the receipt from supply of software was not taxable in India for the reason that the software is a standard software where no copyright is parted by the assessee. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis, Centre of Excellence Pvt. Ltd. vs. CIT [2021] 125 taxmann.com 42 (SC). We further noticed that the DRP while upholding the addition made by the AO in this regard has placed reliance on its own decision in the case of Siemens AG for A.Y. 2009-10(supra). The Ld.AR that the issue is covered by the decision of the Co-ordinate Bench in the case of Siemens AG for A.Y: 2009-10 where it has been held that – “10. After considering the relevant finding given in the impugned orders and the case made out by the assessee before the authorities below and also before us that consideration received for supply of software cannot be deemed to be royalty for the reasons that :-
- Firstly, the software provided are standard off-the-shelf software.
- Secondly, the assessee grants a non-exclusive and non- transferable license to its customers, allowing them to copy the software for single user use only on their equipment.
- Thirdly, the end-user license agreement includes several restrictions, prohibiting the use of the software for purposes other than those specified in the agreement or the creation of copies for commercial exploitation.
- Fourthly, even in cases where the relevant hardware and software are itemized separately on the same invoice, or when separate invoices are issued, or when updates to the software are 13
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft supplied, or additional features are validated at a later date, such distinctions should not affect the stance. These software products are exclusively compatible with the equipment manufactured by the assessee and hold no utility on similar equipment produced by its competitors.-
- Lastly, the software supplied by the assessee, as delineated in the three invoices mentioned in the DRP's directions, is exclusively designed for utilization with the Medical Diagnosis Devices manufactured by the assessee.
1 Apart from that, we find that this issue stands covered by the decision of the Tribunal in assessee’s own case in various assessment years details of which are as under:- AY ITA No. Date of Order 2006-07 8094/Mum/2010 06.05.2014 2005-06 1174/Mum/2010 20.05.2014 2004-05 4502/Mum/2009 18.05.2012 2003-04 2520/Mum/2008 09.07.2010 2002-03 2099/Mum/2007 10.12.2008 2001-02 1957/Mum/2007 08.12.2008 11. The Tribunal in A.Y.2001-02 has held that supply of software is not taxed as ‘royalty’ which has been followed in the subsequent Tribunal orders from A.Y.2002-03 to 2006-07. The relevant extracts are as under:- “6. We have heard the rival submissions and perused the relevant material on record. There is no dispute on the fact that the assessee had not separately sold software but it was part and parcel of the equipment supplies to M/s Siemens Limited. The case of the assessee is that it should be taken at "Business Profits as per Article 7 to DTAA between India and Germany. On the other hand the Department wants it to be considered as falling under Article 13, being the royalty. We have to decide whether the sum of Rs.5.29 crores is to be considered as "Business profits "or" royalty. The Special Bench of the Tribunal in the case of Motorola Inc. Vs. DCIT (2005) 95 ITD 269 (Delhi)(SB) has considered this aspect and held that "the payment made to the assessee for use of software in the equipment did not amount to royalty either under the Income- tax Act or the DTAA." The facts involved in the instant case are akin to those considered by the Special Bench in the afore-noted case. The Learned Department Representative could not point out any distinguishing feature in the 14 ITA No.2259& 1615/Mum/2022; A.Y. 2017-18 & 2018-19 Siemens Aktiengesellschaft facts of the instant case vis-a-vis that decided by the Special Bench. Respectfully following the view taken by the Special Bench in this aspect of the matter, we are of the considered opinion that the amount received by the assessee towards supply of software cannot be segregated from the supply of equipment and hence that portion cannot be considered as "royalty". We, therefore, approve the view taken by the learned CIT(A) on this issue." 12. Furthermore, in AY 2005-06, the Tribunal has examined the scenario wherein software was provided separately from any hardware, and it has adhered to the precedent established in assessee’s own case for A.Y.2001-02. The relevant extract of the observations made by the Tribunal is as under:- “6. During the year under consideration, the assessee had supplied equipment to the various parties in India. The software required for the said equipment wasalsosuppliedbytheassesseetoitsIndiancustomers.Duringtheco urseof assessment proceedings, the A.O. verified the relevant invoices and found on such verification that the software in some cases was supplied by the assessee independently without any reference to the supply of corresponding equipment. He therefore treated the income earned by the assessee from the supply of software as in the nature of royalty and the same was brought10 tax in the hands of the assessee as income from royalty. On appeal, the Ld.CIT(A) held that the value of software could not be taxed as royalty in the hands of the assessee following the decision of the Tribunal in assessee's own case on similar issue for the earlier yearsie.2001-02 & 2002-03. He also took note of the fact that a similar issue was decided by his predecessor in favour of the assessee in assessment years 2003-04 & 2004-05." 13. Now, this issue of taxation of royalty under the DTAA has been decided by the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence PrivateLimitedvs.CIT reported in (2021) 432 ITR 471(SC). The Hon'ble Supreme Court vide its order grouped various appeals before it into following four categories: -
− The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non- resident supplier or manufacturer.
− The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or 15
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft manufacturers and then reselling the same to resident Indian end-users.
− The third category concerns cases wherein the distribute or happens to be a foreign, non- resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributers or end-users.
− The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident
Indian distributors or end-users
14. The Hon'ble Supreme Court held that the amounts paid by resident Indian end-users / distributors to non-resident computer software manufacturers
/
suppliers, as consideration for the resale/use of the computer software, is not payment of royalty for the use of copyright in the computer software and that the same does not give rise to any income taxable in India in all the categories of transactions mentioned above.
15. Before us comparison between facts of the case and the terms and conditions which have been submitted to the ld. AO during the assessment proceedings for later assessment years vis-à-vis the conclusions outlined by Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd.
has been given in the following manner:-
Facts in Engineering Analysis Centre of Excellence (P.) Ltd.
Facts in the case of assessee
1
GRANT OF LICENCE. Samsung grants you a limited non-exclusive license to install, use, access, display and run one copy of the Samsung Software on a single Samsung
Mobile Device, local hard disk(s) or other permanent storage media of one computer and you may not make Samsung Software available over a network where it could be used by multiple computers at the same time.
The Purchaser shall have the perpetual and non- exclusive right to use the Software Product on the devices for which it is intended, whereby each
Software Product may only be used on one device at any given time.
2. You may make one copy of the Samsung
Software in machine readable form for backup purposes only; provided that the backup copy must include all copyright or other proprietary notices contained on the original.
The Purchaser may make up to three copies of the Software Product to be used for back-up purposes only
16
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
LIMITATIONS ONEND USER RIGHTS You shall not, and shall not enable or permit others to, copy, reverse engineer, decompile, disassemble, or otherwise attempt to discover the source code or algorithms of, the Software (except and only to the extent that such activity is expressly permitted by applicable law notwithstanding this limitation), or modify, or disable any features of, the Software, or create derivative works based on the Software. You may not rent, lease, lend, sublicense or provide commercial hosting services with the Software. The Purchaser shall not change, reverse engineer or reverse compile the Software Products and shall not extract any parts thereof. Furthermore, the Purchaser shall not remove any alphanumeric identifiers, markings and Copyright notices from the data carriers and shall copy such in their unchanged form. The above provisions shall apply analogously to all associated documentation. 4 You may not transfer this EULA or the rights to the Samsung Software granted herein to any third party unless it is in connection with the sale of the mobile device which the Samsung Software accompanied. In such event, the transfer must include all of the Samsung Software (including all component parts, the media and printed materials, any upgrades, this EULA) and you may not retain any copies of the Samsung Software. The transfer may not be an indirect transfer, such as a consignment. Prior to the transfer, the end user receiving the Samsung Software must agree to all the EULA terms. The Supplier shall grant the Purchaser the right to transfer the right to use granted to it to a third party. In such case, an agreement is to be concluded with the third party by which the third party shall not be granted any rights of use over and above those granted by the Supplier to the Purchaser 5. 2.LicenseGrant "The Program is owned by IBM or an IBM supplier, and is copyrighted and licensed, not sold.
Licensee receives a license to the Programs from Assimil8 Limited through a sublicensing agreement between
IBM and Assimil8
Limited. Assimil8 Limited grants Licensee a non-exclusive license to (1) use the Program up to the Authorized Use specified in the PoE
(2) make and install copies to support such Authorized Use, and (3) make a backup copy, all provided that a. Licensee has lawfully obtained the Program and complies with the terms of the Agreement; b. The backup copy does not execute unless the backed-up
Program cannot execute Licensee reproduces all copyright notices and other legends of ownership on The Purchaser shall not change, reverse engineer or reverse compile the Software
Products and shall not extract any parts thereof.
Furthermore, the Purchaser shall not remove any alphanumeric identifiers, markings and Copyright notices from the data carriers and shall copy such in their unchanged form.
The above provisions shall apply analogously to all associated documentation.
The Purchaser may make up to three copies of the Software Product to be used for back-up purposes only.
17
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft each copy, or partial copy of the Program.
d………..
e. Licensee does not:
(1) use, copy, modify, or distribute the Program except as expressly permitted in this agreement;
(2) reverse assemble, reverse compile, otherwise translate, or reverse engineer the program, except as expressly permitted by law without the possibility of contractual waiver;
(3) use any of the Program's components, files, modules, audiovisual content, or related licensed materials separately from that program; or sublicense, rent, or lease the Program
Thus, the ratio and principle laid down by the Hon’ble
Supreme Court is clearly applicable on the facts of the assessee’s case and accordingly we hold that consideration received for supply of software cannot be taxed as royalty under India German DTAA.
During the course of hearing, the ld. DR had strongly relied upon the observation made in the assessment order and submitted that a review petition had also been filed before the Hon'ble Supreme Court in the matter of Engineering Analysis Centre of Excellence Pvt. Ltd., However, the same is not entertained because judgment of the Hon’ble Supreme Court as on to dfay is binding on us. Moreover, there are various other decisions of the Hon’ble High Courts on this issue which has been highlighted before us, the same is not being reproduced. Accordingly, we hold that this issue is covered in favour of the assessee not only in its own case as well as by the judgment of the Hon’ble Supreme Court and therefore, we hold that income derived by the assessee from supply of software cannot be subject to taxation as royalty either under Income Tax Act or under the treaty. Thus, ground Nos. 2-5 raised by the assessee are allowed.”
2 The Ld.AR submitted that the assessee is the demerged entity of Siemens AG and the contract with CMRL is passed on to the assessee w.e.f. 01.08.2018 and this fact is not disputed by the revenue. Accordingly the facts considered in the above decision with respect to towards supply of software are identical
18
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft to assessee's case and therefore respectfully following the above decision of the Co-ordinate Bench, we hold that the income derived by the assessee from supply of software cannot be taxed as Royalty either under the Act or under the DTAA between India and Germany. Accordingly the grounds no. 3-5 raised by the assessee stands allowed.
7. Grounds No.6 to 11 pertain to the addition made towards offshore supply of goods as taxable in India on protective basis.
The Ld.AO observed that the assessee received Rs.328,865,813/- towards offshore supply of goods and treated it as not taxable in India. The assessee submitted that the transfer of goods happened outside India and hence the receipts are not liable to tax in India. The Ld.AO did not accept the submissions of the assessee and proceeded to make addition by applying 5% of total receipts on protective basis in the hands of the assessee. The Ld.AO held that, the parties to the agreement namely the assessee and Siemens India Ltd., are to be treated as Association of Person (AOP) in whose hands the income arising towards supply of equipments is to be taxed on substantive basis. The relevant findings of the Ld.AO in this regard are extracted as below:
"8.6. Conclusions regarding the Case based on Facts and circumstances:
The following facts and inferences are drawn in the case:
1. The actual taxable entity in this case is an AOP comprising of Siemens AG and Siemens Limited (India) and is a resident of India.
Accordingly, no benefit of India- Germany DTAA could be afforded to the association.
19
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
The off-shore supplies have been made by the applicant on CIF on Indian port of disembarkation basis. for onshore activities (viz. onshore supplies and onshore services). The term 'Cost, Insurance, Freight', implies that the AOP/assessee has the obligation of Cost and Freight, with the additional responsibility that it has to procure marine insurance against the PGCIL' risk of loss or of damage to the goods during the carriage. In such cases, the delivery of the goods are to be taken as having been made in India. Therefore, the profit on offshore supplies made by the AOP are liable to be taxed in India on the ground that the sale is completed in India. 3. A single, indivisible, composite contract for transmission line project has been artificially segregated to make it appear as three independent contracts, solely with a purpose of avoiding taxed in India. The following facts of the case buttress such assertion: 1. The three parts of the instant contract contain inter-linked cross-fall breach clause specifying that the breach of one Contract constitutes breach of the other Contract(s). Hence, it is clear that essentially the contract is a single individual one. 2. The 'association' proposed as above by applicant Siemens AG has been accepted by employer Power grid subject to the condition that Siemens AG takes the overall responsible and remains liable for the execution of all the three parts irrespective of the fact that the purchaser enter into the 'First Contract with Siemens AG and the 'Second Contract' and the 'Third Contract' with Siemens INDIA. Hence, Siemens AG is the overall undertaker of the Contract and the Contract is unified single one, which has been artificially broken up into 3 parts Further, no reason for assignment of part contract through association arrangement to Siemens Limited (India) has been furnished 3. Further, it is not known whether Siemens Limited (India) would have such qualification for eligibility of the relevant contract. Hence, independently, Siemens Limited (India) may be ineligible for undertaking the contract. However, due to the involvement of Siemens AG, the contract has been successfully achieved. Hence, in true essence, the Contract is a single project which has been conferred on Siemens AG. 4. Apparently, in this case the bidding fee has paid on one instance only by the applicant Siemens AG and not three times. Associate Siemens Limited (India) has not submitted any bidding
20
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft fee. Hence, any argument that the case involves three distinct contracts is liable to rejection.
Hence, it is abundantly clear that the underlying Contract is an indivisible one for the transmission line project, which has been attempted to be artificially dissected into 3 inter- linked parts.
1. The arrangement with Siemens Limited (India) as associate for assignment of part of the composite contract has been made with a view to avoid taxes since in case of sub-contract to any unrelated third- party would have resulted in some taxable margin/profits in the hands of the assessee foreign company, Siemens AG. The contract has been artificially divided into 3 parts so as to avoid formation of a Permanent
Establishment in India and avoid taxability.
2. The Permanent Establishment of the assessee, Siemens Limited
(India) is directly involved in the relevant transaction as an 'associate'.
8.7. In light of the above discussion, the contentions of the assessee are not acceptable. Therefore, it is hereby held that the revenues stated to be emanating from the off-shore supply contract are liable to tax in India in the hands of the Association of Persons (AOP) formed by the assessee Siemens AG and Siemens (India) Limited.
8.8 During the course of assessment proceedings no India-specific account has been furnished by the assessee so that its income from operations in India can be determined and proper allocation may be made to profits attributable to Indian operations in respect equipment supplies. In such a situation, there is no option but to perforce resort to estimation of the taxable profits of the assessee as per Rule 10 of the Income Tax Rules. In this case, Rule 10(ii) will not be applicable in the instant case since the global profits and gains of the assessee have not been computed in accordance with the provisions of the Indian Income
Tax Act. The income of the assessee is, therefore, liable to be computed as per Rule 10(i) read with Rule 10(iii) of the Income Tax Rules, which provides that income of the assessee may be determined at a reasonable percentage of the turnover.
Off-shore supply companies world over earn their income primarily from the margin earned in manufacturing and sales process. In these circumstances and in absence of details from the side of the assessee with respect to the profitability of the assessee payee (Siemens AG), it is reasonable to estimate the income as 10% of their receipt. Further, since some parts of the operations have been carried out in the respective
21
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft country of residence, Germany, it is also reasonable to estimate that the residence and source country have a 50:50 right over the income so received by the assessee. Hence, the net taxable income from off-shore supplies is 5% in case of the assessee. Since, the tax rate in India for foreign companies is 40%, it is estimated that the tax payable by assessee Siemens AG in India is 2% of the gross receipts from Off-shore supply of the equipment( cess and surcharge extra).
8.9. However, it has been held in the above discussion that the income from Offshore supplies have accrued to the A.O.P. comprising of assessee Siemens AG and Siemens (India) Limited. Obviously, the relevant A.O.P. would be a resident of India for tax purposes. Therefore, the tax liability arising to the A.O.P. is liable to be determined and levied by the Assessing Officer concerned exercising juri iction over the resident A.O.P. The substantive determination and assessment of income of the A.O.P. is to be referred to Assessing Officer having juri iction over the relevant case. Hence, the demand arising from off- shore supplies in case of the assessee are only protectively assessed by this Order. However, in any eventuality, if it is held in any proceedings that taxability do not arise in the case of the referred A.O.P. as above or, in any proceedings the taxability of the A.O.P. gets quashed/deleted, in such circumstances, the above-referred income is liable to be treated as substantially assessed in hands of the assessee foreign company and accordingly, the tax demand will fall due in case of the assessee
Accordingly a sum of Rs.1,64,43,813,/- being 5% of total receipts of Rs
32,88,76,266/- is taxed as income from composite contract liable for taxation in India @ 40% (plus cess/surcharge). charge) "
7.1. The Ld.AR submitted that no assessment in the hands of AOP on substantive basis was done by the Revenue and therefore the protective assessment in the hands of the assessee without substantive assessment cannot hold good. In support he placed reliance on the view taken by the coordinate bench in assesses own case for assessment year 2020-21(supra)
7.2. On merits the Ld.AR submitted that, supply of equipment’s took place outside India on CIF basis and therefore the receipts
22
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft in the hands of the assessee towards the supply cannot be taxed in the hands of the assessee in India.
7.3. It is noted that the Ld.AO treated the assessee and Siemens
India Ltd. to be AOP, in whose hands the income arising towards supply of equipments is to be taxed on substantive basis. The Ld.AR submitted that, no substantive assessment is done in the hands of AOP and the revenue did not bring anything on record to substantiate that there has been substantive assessment. The Ld.AR submitted that coordinate bench in assessee’s own case for assessment year 2020-21(supra) while considering this issue relied on decision of coordinate bench of this Tribunal in case of Pegasus Properties (P.) Ltd. vs DCIT reported in (2022) 135
taxmann.com 294 considered this aspect and held that without substantive assessment. Reliance is placed on the observation of this Tribunal in assessee’s own case for assessment year 2020-
21(supra) in para 12. 7.4. It is an undisputed fact that the contract of the assessee is continuation of the contract of Siemens AG w.e.f. 01.08.2008 and therefore in our considered view, the above decision of the coordinate bench in assessee’s own case for assessment year
2020-21(supra) in para 12 is applicable for the years under consideration. We thus hold that the assessee and Siemens
Limited do not constitute AOP.
Accordingly, ground nos. 6-11 raised by the assessee stands allowed.
8. Ground No.13 to 21 raised by the assessee is with regards to the benchmarking of the transaction with Indian AE on ad hoc
23
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft basis without adopting any mechanism to determine the ALP of the transaction.
The Ld.AR submitted that the facts that lead to the adjustment for the year under consideration are similar with that of Assessment year 2009-10. He thus relied on the arguments on behalf of the assessee for assessment year 2009-10. The Ld.AR relied on following arguments of the assessee on identical facts for assessment year 2009-10(supra):
“64. Before us ld. Sr. Counsel Shri P.J. Pardiwala submitted that assessee has carried out detailed functional analysis and also undertaken such process while undertaking the benchmarking in their
TP study report. He further submitted that TP adjustment cannot be made merely on the basis of alleged discrepancy in the amount of transaction reported by the assessee and it's Indian AE. The ld. TPO is bound to determine the arm's length price of the international transaction within the framework of the transfer pricing regulations, by selecting a specific method prescribed in section 92C of the Act and as per laid down in the Rule 10B of the Rules.
65. He submitted that it is not the case of the TPO and there is not a whisper of allegation in the TP order of the assessee and the Indian
AE's that the services were not provided by the assessee or the royalty for use of technical know-how was not made available by the assessee.
Despite being so satisfied, the TPO proceeded with an ad-hoc disallowance only on account of alleged discrepancies in the amount of transactions reported by the assessee and its Indian AE's. In support he relied upon the decision of Judgment of the Hon'ble Bombay High
Court in the case of CIT vs. Johnson and Johnson Limited reported in (2017) 80 taxmann.com 337, wherein the Hon'ble High Court was dealing with a case of assessee who paid royalty at the rate of 2%. The TPO restricted the royalty to 1% without providing any reasoning. In said facts, the Hon'ble High Court held in favour of the Assessee by making the following important observations:
"....We find that the impugned order of the Tribunal upholding the order of the CIT(A) in the present facts cannot be found fault with. The TPO is mandated by law to determine the ALP by following one of the methods prescribed in Section 92C of the Act read with Rule 10B of the Income
Tax Rules. However, the aforesaid exercise of determining the ALP in respect of the royalty payable for technical know-how has not been 24
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft carried out as required under the Act. Further, as held by the CIT(A) and upheld by the impugned order of the Tribunal, the TPO has given no reasons justifying the technical know-how royalty paid by the Assessing Officer to its Associated Enterprise being restricted to 1% of 2% as claimed by the respondent assessee. This determination instead of ALP of technical know-how how royalty by the TPO was ad-hoc and arbitrary as held by the CIT(A) and the Tribunal In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained".
66. He also relied upon the following judgments on similar point.
• CIT(A) v. Lever India Exports Limited (2017) 246 Taxman 133
(Bombay)
• CIT LTU v. SI Group-India Limited (2019] 265 Taxman 204
(Bombay)
• CIT v. Merck Ltd (2016) 389 ITR 70 (Bombay)
• CIT v. Kodak India (P.) Ltd. [2016] 288 CTR 46 (Bombay)
67. Accordingly, he submitted that adhoc adjustment of 10% o the value of international transaction declared by the assessee is not justified.
68. In so far as relying on the TP study report of the Indian AEs to justify the arm's length nature of its international transaction, Ld. Sr.
Counsel submitted that Indian AEs have benchmarked all the transactions after detailed FAR analysis entered into with the assessee.
The Indian AEs have earned Net Cost Plus Margin /Net Profit Margin
(after considering services availed from assessee) that are consistent with the margins earned by comparable independent companies.
Accordingly, applying the TNMM method and based on the analysis of the Indian AEs, the services rendered by the assessee were considered at arm's length from the perspective of Indian transfer pricing regulations.
69. He further submitted that, the Indian AEs had demonstrated through their Transfer Pricing Study Reports which are also adopted by the assessee that these transactions meet the arm’s length principle as prescribed by Indian Transfer Pricing Regulations. The copies of Transfer Pricing Study Reports of Indian AEs were also submitted to the TRANSFER PRICING OFFICER vide submission dated 31/08/2012
during the course of TP assessment proceedings. Ld. Sr. Counsel further submitted that under the transfer pricing regulations the Indian AEs
(being the recipient of the technical services) are required to document their compliance with the arm's length principle as a payer. And the Indian AEs have documented the same and determined the transaction to be consistent having regards to the arm's length principle.
25
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
In view of the above and having regard to the economic and commercial factors, the compliance by associated enterprise with the provisions of Sections 92, 92A to 92F of the Act is considered, then it has to be reckoned as sufficient compliance by the assessee for the arm's length standard prescribed by the Indian transfer pricing regulations. Without prejudice he submitted that during the transfer pricing assessment proceedings of the Indian AEs for the same year under consideration following upward adjustment have also been made to the taxable income of Indian AEs. Sr. No. Name of the Associated Enterprise Adjustment made for FY 2008-09 as per TPO 1 Siemens Limited 85.93 crores 2 Siemens Information Systems Limited 47.04 crores 3 Siemens Corporate Finance Private Limited 0.64 crores 71. Thus, in the case of the Indian AE’s the same Ld.TPO concluded that the Indian AEs have paid excess expense including royalty and fees to the assessee as said expense basis are different set of comparable used in his process. On the contrary, in the TP assessment, the ld. TPO while making the ad-hoc adjustment arrives at a result in which the assessee has under charged from the AE for the same transaction in question. Thus, Id. TPO has taken exact contrary positions for the same transaction which would only lead to double taxation and therefore, this ground also no further adjustment should be made. In support of its contention that once the ALP has been adjudicated by the ld. TPO in the hands of the AE, it is not open to adopt a different ALP in the hands of the assessee. He relied upon the decision of Mumbai ITAT in the case of Tecnimont SPA India Office 22] 145 taxmann.com 477 (Mumbai Trib.) wherein the ITAT held as under:- "14. Having heard both the parties and after perusal of the records, we note that the payments made by the assessee PE to its AE's i.e. assessee with TICB and EDTICB were held to be at Arm's Length by this Tribunal (supra); and since the same international transaction of the instant assessee's procurement cost (being subcontracting income for the AE's i.e. of assessee viz TICB and EDTJCB) has been accepted as Arm's Length for the AE 's and the same beins mirror transaction cannot be considered excessive in the hands of the assessee/appellant. Therefore, on the same reasoning/ratio of the decision of the Tribunal (Banglore) in UE Development India Pvt. Ltd. (supra) which has been upheld by Hon'ble High Court (supra), we hold that where the Tribunal has accepted the international transaction to be at Arm's Lensth Price in 26 ITA No.2259& 1615/Mum/2022; A.Y. 2017-18 & 2018-19 Siemens Aktiengesellschaft the hands of AE, then the international transaction that the assessee had with the facts and AE's to be also at Arm's Lensth Price and therefore no adjustment was warranted in the circumstances of the case. And the revenue could not point out any change in facts/law in respect to the ratio-decidendi of Bangalore Tribunal/Karnataka High Court in the case of UE Development India Pvt. Ltd. (supra). So we allow the ground no. 6 of the assessee s appeal and direct deletion of Arm's Length Price made as per the impugned order." 72. Reliance was also placed on the decision of Hon'ble Karnataka High Court in the case of CIT v. UE Development India (P.) Ltd. [IT Appeal Nos. 52 to 55 of 2014, dated 12-7-2018] which was also subsequently followed by other Coutts and Tribunals as well, in which it was held that if the transaction is considered to be at arm's length price in the hands of the Indian AEs, then no transfer pricing adjustment should be made in the hands of the Assessee company with respect to the same transaction. 73. On the other hand Id. DR submitted that assessee should have done independent benchmarking instead of relying upon benchmarking activity carried out by the Indian AEs. The determination of arm's length price has to be done separately because what is required to be seen whether assessee payment received is at arm’s length price independently. Apart from that, he submitted that the reason for making the TP adjustment was on account of difference in the amount reported by the assessee as well as Indian AE and therefore, the arm’s length ALP determined in the case of assessee on this issue cannot be accepted on the transaction of royalty received by the assessee 74. In rejoinder, Id. Sr. Counsel had explained reasons for differences reported by the assessee in its Indian AE in the following manner:- -The assessee reports the amount on receipt basis whereas the Indian AEs report transaction on accrual basis. This is a consistent position followed by the assessee basis the provisions of the tax treaty. This position has also been upheld by the Bombay High Court in the assessee's own case. Therefore, amounts received by assessee and amounts recorded by Indian AE's would not be identical. - The assessee reports only those transactions that are subject to tax in India e.g. fees for technical services, whereas Indian AEs report all the transactions like purchase / sale of goods. provision and availing of services, reimbursement / recovery of expenses whether income/expense. It is thus natural that these would be differences in the transactions reported by the assessee and the AE's. 75. Thus, he submitted that reconciling the amounts reported by itself and its Indian AEs was unfeasible due to the provision of manual TDS
27
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft certificates issued by payers during the relevant period. This made it challenging to match individual invoices with TDS certificates which were issued at a consolidated level Nonetheless, it has been able to achieve a substantial reconciliation of the transactions, which were placed on record during the TP proceedings before the TRANSFER
PRICING OFFICER vide submission dated 31/08/2012 as well as 27/09/2012. 8.1 As noted in the preceding paragraphs, we note that the facts that led to the adjustment in the present assessment years are identical with assessment year 2009-10 (supra). It is noted that this Tribunal for 2009-10 (supra) read as under :
76. We have heard the rival submissions and perused the relevant finding given in the impugned orders. One of the reasons given by the Id. TPO and the Id. DRP is that assessee has been earning to reconcile the value of transaction disclosed by the Indian AEs in the Form 3CEB if the value disclosed by the assessee in its return of income. The assessee had explained that the difference is for the reason that assessee accounts the amount on receipt basis whereas the Indian AE's reports the transaction on accrual basis and this assessee has been doing in accordance with the provisions of the tax treaty. It is important to note here that, this position has also been upheld by the Hon'ble
Bombay High court in assessee's own case that it should be taxed on receipt basis. It was for this reason amounts recorded by the Indian AE cannot be the same. Apart from that, the assessee reports only those transactions that are subject to tax in India, i.e., element of Fees for Technical Services only, whereas Indian AEs report all the transactions like purchase / sale of goods, provision and availing of services, reimbursement / recovery of expenses whether income/expense. It is thus quite natural that there would be differences in the transactions reported by the assessee and the AE’s. Once this fact has been brought on records and assessee has given this explanation for reconciliation, then this cannot be the reason or the ground for making adhoc adjustment @10% by taking 10% mark-up on the value of international transaction. Such an exercise is completely against the concept of transfer pricing revelation. The Id. TPO was bound to determine the ALP in accordance with the Rules after analyzing the nature of transaction and the arm's length price after applying method provided under the Rules. If in the case of the Indian AE, the same transaction has been benchmarked and has been accepted to the ALP, then, unless there are different factors which need to be analyzed on the same transaction, it 28
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft cannot be held that the same ALP cannot be accepted in the case of recipient foreign company. In fact it has been informed that Id. TPO has made adjustment under various heads which also includes payment of royalty. Any further adjustment is not called for in the case of the assessee to adopt a different ALP. Though the true course would have been that ALP of FTS and royalty should have been benchmarked separately as per the Rules, however, when assessee had carried out and furnished TP study report and also relied upon the margins declared by the Indian AEs after carrying out different study report, then without finding any defect in such TP analysis and determination of ALP by the assessee, Id. TPO could not have resorted to adhoc mechanism for adding 10% mark-up on adhoc basis. Thus, in absence of any contrary inference drawn by the Id. TPO on the TP study report of the assessee and at the same time in the case of Indian AE, same transaction has been benchmarked and ALP has been determined then we do not find any reason for taking adhoc 10% mark-up. Accordingly, the same is deleted. In the result, grounds No.12-19 are allowed.”
8.2 Respectfully following the above decision of the Co-ordinate
Bench, for assessment year 2009-10 (supra), without there being any defect identified by the Ld.TPO in the TP analysis, we are of the opinion that adhoc disallowance cannot be resorted to.
Accordingly grounds 13 to 21 raised by the assessee stands allowed.
9. The assessee also raised additional ground on the legal issue of the final order of the Ld.AO being barred by limitation as per the provisions of section 153(1) of the Act. The said ground is left open in view of our decision on merits as decided here-in- above.
10. The grounds raised by the assessee for assessment year
2018-19 are on identical facts and similar to the grounds raised for A.Y: 2017-18 herein above.
Accordingly, the view adopted for A.Y. 2017-18 shall apply mutatis mutandis.
29
ITA No.2259& 1615/Mum/2022;
A.Y. 2017-18 & 2018-19
Siemens Aktiengesellschaft
Accordingly, grounds raised by the assessee for A.Y. 2018-19
stands allowed.
In the result the appeals filed by the assessee for A.Y. 2017-
18 & 2018-19 stands allowed.
Order pronounced in the open court on 22/09/2025 (RENU JAUHRI)
Judicial Member
Mumbai:
Dated: 22/09/2025
Poonam Mirashi,
Stenographer
Copy of the order forwarded to:
(1)The Appellant
(2) The Respondent
(3) The CIT
(4) The CIT (Appeals)
(5) The DR, I.T.A.T.By order
(Asstt.